The Franchise Memorandum

In Bath Junkie Branson, L.L.C. v. Bath Junkie, Inc., 2008 WL 2330749 (8th Cir. June 9, 2008), the Eighth Circuit Court of Appeals affirmed a federal court’s enforcement of the parties’ settlement agreement. Franchisor Bath Junkie, Inc. had appealed the district court’s decision to enforce a settlement agreement on the grounds that the court had erred in refusing to hold an evidentiary hearing as to whether there was a “meeting of the minds” on that settlement. Applicable case law provides for an evidentiary hearing when there is a dispute as to settlement. The Eighth Circuit found no error because the franchisor had simply failed to request a hearing prior to the district court making its decision. The case, however, exemplifies the perils of notifying the court of settlement prior to reducing it to a writing.

The franchisee and franchisor had reached a settlement on the eve of trial. The “salient” terms of settlement were recited on the record to the district court. Neither party suggested that there were any additional material terms, other than the fact that the parties would execute a written settlement agreement. Thereafter, after exchanging several drafts, the parties could not finalize a written settlement agreement. The court issued a motion to show cause why it should not dismiss the case. The franchisee replied requesting that the court enforce the terms of settlement that the parties had initially reached. The franchisor responded with several affidavits that provided for additional terms of settlement, but the franchisor never requested an oral hearing on its reply. On the papers, the court enforced the settlement recited to it by the parties. Thereafter, the franchisor requested an evidentiary hearing, which the court denied. The franchisor appealed, contending that the court had erred in refusing the franchisor’s request for a hearing. The majority of the Eighth Circuit disagreed, holding that the franchisor had simply failed to timely request an evidentiary hearing.